Forex Patterns | Rising Wedge And Falling Wedge
Falling Wedge and Rising Wedge Patterns include easily recognizable price patterns and promising lucrative opportunities. Let’s learn the trading strategy here.
Studying price patterns has become one of the most popular options for traders to get a direct trading signal from price movements on Chart. Examples of such price patterns include Rising Wedge pattern and Falling Wedge pattern. Both price patterns can be recognized easily and promise profitable trading opportunities.
What is Wedge Price Pattern?
Wedge price patterns are almost similar to Triangle and Pennant patterns. Basically, the patterns highlight the price movement of the cone. The indication is that the strength between seller and buyer is consolidating (as strong, but Volume is usually reduced), with a high potential to experience a Breakout in either direction.
Visually, Wedge’s price pattern is shaped like a slice of a circle. If the “wedge” is facing upwards, then the term is Rising Wedge. Whereas if “slices” duck down, the name is Falling Wedge.
Rising Wedge Patterns
The Rising Wedge pattern appears when the market consolidates with the slope of the Support line steeper than its Resistance line, so the low price is getting faster and faster than the high.
Wedge pattern has a shape similar to triangle pattern, flag pattern, or pennant pattern and also a reversal or continuous pattern. There are two types of wedge pattern is rising wedge and falling wedge. The word wedge can be interpreted in our language as a wedge whose function is to hook objects.
Rising wedge can serve as a reversal signal or continuation over the movement of a currency pair price. If the rising wedge pattern is formed after a price movement that tends to rise or uptrend then most likely indicates a strong reversal signal.
By looking at the chart above can be seen that the pattern of wedge formed by beginning trend of up pattern or uptrend of price movement of currency pair which then form its highest price. Then when it has touched its resistance level began to happen reversal after a price consolidation in a range that continues to rise and narrow as if forming a wedge as shown below.
Although at a glance the price looks steadily higher, but the Rising Wedge price pattern indicates that the upward trend of the climb is weakening. That is, the volume is running low.
If this pattern is formed during Uptrend, then the price has the potential to turn the plunge. Meanwhile, if formed along the declining trend, the most likely is the price will resume the decline.
And here is an example of a wedge pattern that indicates a strong sustained signal with the start of a downward trend or downtrend.
After forming the lowest price there is consolidation and the price starts to move up and narrow in its price range and when it has touched the resistance range there is a reversal to continue the downtrend pattern.
So it can be said that the formation of this rising wedge pattern is a delay on the fall of a price on the downtrend pattern that occurs.
And it can be concluded that this rising wedge pattern can indicate a reversal or sustained movement of the price of the currency pair. If the rising wedge is formed after the formation of the movement pattern that tends to rise or uptrend can be said that rising wedge serves as a reversal signal (reversal) but if preceded by a pattern of movement that tends to decrease or downtrend then rising wedge serves as a continuous signal (continuation). This pattern can be incorporated into the BEARISH CHART PATTERN group.
Falling Wedge Patterns
Contrary to the Rising wedge, the Falling Wedge pattern appears when the market consolidates down with the Resistance line steeper than its Support line. Thus, the high value (High) is always faster than the low value (Low).
If this pattern is formed during the descending trend, then the price has the potential to rebound skyrocketing. When formed along the ascending trend, most likely the price will resume the increase.
Like the rising wedge falling wedge pattern can also be a reversal or continuation signal only its function is the opposite and grouped into BULLISH CHART PATTERN.
Here is an example of falling wedge as a reversal signal with a characteristic begins with price movements that tend to fall (downtrend).
Then followed by price consolidation in a decreasing range and narrow in its range. As it progresses down to the support level then the price prepares for a rising upward breakout.
Take profit target can be measured from the height of the pattern and project it to the breakout point of the resistance line.
And the following is the function of falling wedge as a sustainable signal by first forming a price movement that tends to rise or uptrend.
After the consolidation of prices in a decreasing range and narrow in its range. As it progresses down to the support level, the price of getting ready for the uphill breakout continues the uptrend.
And it can be said that the formation of falling wedge pattern is a tendency to delay the pattern of movement that tends to rise or uptrend previously formed.
Take profit targets can be obtained by measuring the height of the pattern and then projecting it to the breakout point until its resistance level.
What is the Wedge Pattern Trading Strategy?
Planning the execution of trading based on the emergence of Rising Wedge pattern or Falling Wedge pattern can be done in a simple way. Novice traders can use it as long as they follow the right trading steps.
First, the identification of the formation of price patterns. This first step can be done on all kinds of Forex Pair and Timeframe, but it is advisable to study on Pair major and Timeframe Hourly until Daily first get used.
Generally, the profit targets in the Falling Wedge or Rising Wedge pattern can be determined through the Range (distance) value of Low to High at the beginning of the “slice” or the longest Range candle in the channel. From the same chart, it is known that the longest Range candle on the Rising Wedge pattern is about 70 pips.
Next, the loss limit can be determined according to the Risk and Reward ratio or placed near the Support and Resistance limits. Since the profit target is set at 70 pips, the loss limit can be set at 35 pips (Ratio 1: 2) or near the Upper Band of Bollinger Bands.
Trading steps using Rising Wedge pattern above can still be developed or modified according to trading habit. For example, supporting indicators may be replaced by RSI, MACD, or other indicators that can identify at what level point the trend will change.
Advantages And Disadvantages of Wedge Patterns
Also note, the Falling Wedge pattern and the Rising Wedge pattern have advantages and disadvantages that should be considered before being applied to the trading system. Here is the description:
Like most price patterns, the two slice patterns are subjective. Due to this condition, the price pattern has high flexibility so it can be used on all kinds of Pair and Timeframe. The problem is, because there is no definite benchmark, the rules of opening and closing positions will vary from one trader to another.
For example, one trader requires the use of this indicator and that is to confirm the signal, but other traders do not even use any indicators other than Trendline lines to highlight the formation of price patterns. Both are likely to get big profits, although the approach to Entry and Exit rules is different.
Because of its fairly high flexibility, the Falling Wedge and Rising Wedge patterns offer the possibility of setting up an almost limitless trading system. For that reason, all traders, from beginners to professionals, can use both of these slices to get a reliable trading signal.
Please always keep in mind that when using technical analysis as a forex trading tool then we should always remember to apply risk management and not too greedy in pursuit of profit especially when the foundation of forex trading is feeling not logic.